Corbett gains pension reform support
A statewide organization of school employees on Tuesday voiced its support of Gov. Tom Corbett’s proposal to reduce future benefits for current members of the state’s pension systems.
According to The Pennsylvania Association of School Business Officials, school pension costs will continue to increase, dramatically resulting in more program and personnel cuts in future budgets as well as draining reserves at unsustainable rates.
Because the association’s members are also members of the Public School Employees Retirement System, the state Department of Education considers the PASBO’s support to be crucial in urging the General Assembly to pass Corbett’s proposed reform with the state budget.
“It means a lot for [PASBO] to come out and support what the governor is doing. They deal with finances daily and see the burden on their school districts and ultimately taxpayers when it comes to these pensions,” department of education spokesman Tim Eller said.
Eller said he thinks there are many legislators who may oppose reform, saying it breaks promises to employees.
“It will take more groups like PASBO and citizens to contact leaders and demand changes,” he said.
Efforts were made to contact a field director for the Blair region of the Pennsylvania State Education Association for comment.
Lawmakers could pass a budget on June 30 that includes pension reform beginning in 2015.
An Altoona lawmaker and CFA Institute-certified financial analyst for investment management said Corbett’s plans aren’t enough to address the underfunding of the systems. John McGinnis, R-Altoona, is set to propose a bill that he hopes will open people’s eyes in Harrisburg to how underfunded the systems are.
Pennsylvania has a defined pension benefit systems backed by a combination of investment returns, contributions from workers and tax dollars.
The state’s two pension systems, PSERS and State Employees Retirement System are reportedly underfunded by a combined $41 billion.
“As a financial economist, I can assure you, it is much worse than that,” said McGinnis. His bill seeks to change assumptions used in the pension system’s accounting.
For example, PSERS funding gap is based in on an assumption that taxpayer investments to the system will increase at a rate of 7.50 percent annually. That is not always true. For the year end of June 30, 2012, the system generated a total return of 3.4 percent which resulted in $1.1 billion of net investment income, PSERS annual financial report states.
PASBO has stated changes to current employees future benefits are unfortunate, but it recognizes an urgent need for reform.
“School pension reform is a critical and immediate need, which is why we believe that a reasonable modification of future benefits for current employees is unfortunate but necessary,” stated PASBO executive director Jay Himes.
PASBO has voted to support restructuring of future benefits for current employees as proposed by Corbett in his February budget address.
His plan guarantees no changes to benefits for retirees and no changes to benefits accrued by current employees through the effective date of the plan-but the formula will be changed so that future benefits that will accrue will be reduced.
Under Corbett’s plan, current employees can still keep their future benefits at current levels by paying more into the system.